How to Dissolve a Corporation in Rhode Island

Find out how to go about dissolving a corporation in Rhode Island.

For some corporations, a time comes when the people who own and run
things voluntarily decide to close the business. If you’ve reached that
point with your Rhode Island corporation, you’ll need to take care of
multiple tasks—including what is called dissolving and winding up your business.

Dissolving the Corporation

Your
corporation is registered with the State of Rhode Island. Officially
ending its existence as a state-registered business entity, and putting
it beyond the reach of creditors and other claimants, begins with a
formal process called “dissolution.” While a corporation may be
involuntarily dissolved through a court decree, or have its articles of
incorporation revoked for administrative reasons such as failing to file
an annual report or pay fees, this article covers voluntary dissolution
by a corporation’s shareholders. Also, while there are streamlined
procedures for dissolving corporations that have not yet issued stock or
started doing business, those procedures are not covered in this
article.

Rhode Island’s Business Corporation Act (“BCA”) provides for voluntary dissolution through either of two methods:

action by the board of directors followed by a shareholder vote; or

unanimous written consent of all shareholders.

Under
the first method, your board of directors adopts a resolution
recommending that the corporation be voluntarily dissolved. The
shareholders then must vote on the proposed dissolution at a shareholder
meeting. You are required to give at least ten days advance notice of
the meeting to each shareholder entitled to vote on the proposal. At the
shareholder meeting, approval of the dissolution requires a majority of
the shares entitled to vote on the proposal. (If you have share classes
entitled to vote separately, then a majority of the votes cast in each
class must approve the proposal.) Make sure to properly record both the
board’s resolution and the shareholders’ votes.

To use the second
method, you should get signatures from all shareholders on a consent
form containing a resolution to dissolve the corporation. If you adopt
the resolution to dissolve using this method, there should be no need
for separate action by the board of directors. This method can be more
efficient for small businesses where all or most of the shareholders are
also directors, and where there is unanimous agreement regarding
dissolution.

NOTE: Dissolution, alone, does not
take away or impair any claim by or against the corporation or its
directors, officers, or shareholders for a period of up two years after
the date of dissolution.

Notice to Creditors

Regardless
of whether you dissolve through board action and a shareholder vote, or
through unanimous shareholder consent, immediately after adopting the
resolution you must notify your corporation’s creditors that the
resolution has been adopted.

“Winding Up”

Following
dissolution, your corporation continues to exist for the purpose of
taking care of certain final matters that, collectively, are known as
“winding up” the company. It may be appropriate to designate one or more
officers and/or directors to handle the winding up.

Under the BCA, key winding up tasks include:

collecting the corporation's assets

selling or otherwise disposing of corporation properties that will not be distributed in kind to shareholders

paying, satisfying, and discharging the corporation’s liabilities and obligations; and

distributing
the remainder of the corporation’s assets, either in cash or in kind,
among the shareholders according to their respective rights and
interests.

Regarding the last two listed items, be aware
that your corporation’s first obligation is to discharge liabilities.
This includes paying all business taxes and creditors. Only then may the
corporation distribute remaining assets to shareholders.

Tax Clearance

Rhode
Island requires that your corporation be in good standing with the
Division of Taxation (“DOT”) before you can file articles of
dissolution. (Articles of dissolution are discussed just below). You
will need to complete and file a request for a letter of good standing
with the DOT. There is a $50 fee to file the request. A request form is
available on the DOT website. Apart from providing various other
information—corporation name, address, Secretary of State ID number,
entity type—you should check off the box for “Filing for Articles of
Dissolution” in Section V of the form (Dissolution/Cancellation of
Domestic Entities).

It often takes four weeks to get a letter of good standing, but processing time can vary depending on specific circumstances.

Articles of Dissolution

After
dissolving and winding up your corporation, including obtaining your
letter of good standing from the DOT, you must file articles of
dissolution with the Secretary of State (“SOS”). To complete the
articles of dissolution, you must provide:

the name of your corporation

an indication of whether dissolution was approved by a shareholder vote or by unanimous written consent of the shareholders

a
statement that all debts, obligations, and liabilities of the
corporation have been paid and discharged, or adequate provision has
been made for the payment

a statement that all remaining
property and assets of the corporation have been distributed among its
shareholders in accordance with their respective rights and interests

a
statement that there are no suits pending against the corporation in
any court, or that adequate provision has been made for the satisfaction
of any judgment, order, or decree which may be entered against it in
any pending suit; and

a statement that, as required by Section
7-1.2-1309 of the Rhode Island General Laws, the corporation has paid
all fees and franchise taxes.

Make sure to include your
letter of good standing from the DOT. The letter of good standing must
be dated within 30 days of the date the SOS receives the articles of
dissolution.

There is a $50 fee to file the articles. Your filing
usually will be processed within seven to ten business days. You can get
expedited processing if you deliver the articles in person to the SOS.
An articles of dissolution form is available for download from the SOS
website.

Be aware that your business name will become available for use by others immediately after dissolution.

S Corporations

An
S corporation is a corporation that has filed an election with the IRS
to have business income, losses, deductions, and credits pass through to
individual shareholders for federal tax purposes. Only the
shareholders, and not the corporation, pay federal taxes on income from
the business. Potential tax issues aside, the process for dissolving and
winding up an S corporation is generally the same as dissolving and
winding up a traditional corporation.

Out-of-State Registrations

Is
your corporation registered or qualified to do business in other
states? If so, you must file separate forms to terminate your right to
conduct business in those states. Depending on the states involved, the
form might be called a termination of registration, certificate of
termination of existence, application of withdrawal, or certificate of
surrender of right to transact business. Failure to file the additional
termination forms means you’ll continue to be liable for annual report
fees and minimum business taxes.

Additional Information

You can find additional information, such as forms, mailing addresses, and filing fees, on the SOS website and DOT website.

Final Note: Dissolving
and winding up your corporation is only one piece of the process of
closing your business. For further, general guidance on many of the
other steps involved, check Nolo’s 20-point checklist for closing a business and the Nolo article on what you need to know about closing a business.